Peli made Paranormal Activity for $15,000 and shot his tale of a young couple who videotaped the strange noises they hear in his own home in San Diego. Now the one-time video-game programmer, 39, has "the new Blair Witch" on his hands, a film that has audiences "gasping and shrieking throughout," according to The Capital Times in Madison, Wis., one of the college towns (along with Orlando and Durham, N.C.) where Paramount opened Paranormal to midnight showings. In Orlando at the AMC Universal, the little horror movie that could has been selling out midnight weekend showings.

Peli shot the low-key creep fest in 2006 and had started to wonder if it would ever reach a big screen.

"It was definitely a roller coaster. Things would stall, and stall again," Peli says in between studio meetings in L.A. "Somewhere, deep down, I started thinking, 'Maybe something will change.' But it was a lot of days, weeks, months, waiting to hear from the studio what they wanted to do with it, and that wasn't the most fun."

What Paramount decided to do was release the buzzed-about film first in 13 cities, then more that "demanded" that they get it.

"Paramount is used to releasing these big blockbusters, and for them to try a strategy like this, city by city, at midnight, amazed me," Peli says. "We shot the audiences reacting to the film [in the theater] and made that the trailer, and let the fans do the word-of-mouth on the film as marketing."

The guys who made The Blair Witch Project and helped invent "viral movie marketing" are watching Paranormal build an audience — and smiling.